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This blog entry is going to be short, and I hope, sweet.

We all want to maximize our winning PIP count and minimize our losing PIP count for every trade that we take.

After a month of trading with the Market Maker Course software (Smart Money Profile), I’m convinced that limit-profit to stop-loss (reward to risk ratios) can be 4:1 to 6:1 and even higher.  In Market Maker Course language, this means we can often look to capture 20-30 PIP profits with a 5 PIP loss as our risk management number.

HOW can we dare use such a small stop-loss of 5 PIPs?  Because when the SMP charts are showing high probability setups and entries, and you’ve chosen the correct direction to take your trade, the price-action rarely violates by five PIPs or more the significant price levels shown as dots, average price lines, liquidity lines, grid and net lines.

WHY use just 5 PIPs as your stop-loss?  Two huge reasons.  First, the conservative reason.  Simply put,   if you’re wrong three trades in a row, your losses will amount to about fifteen PIPs.  One successful Market Maker Course trade can be well over twenty PIPs, but, let’s keep it at twenty for this example.  Do the arithmetic, one success completely cleans up three losses and even after adding in all the commissions, leaves you about even.  To me this is really smart risk management.

Second, the aggressive reason.  I’m assuming you’re a veteran, seasoned Market Maker Course trader, able to see and act on, mostly, high probability trades when they present themselves.  By practicing conservative five PIP stop-loss trading and adding in an overall winning trade percentage of 70%, I can  see weeks where you will be up ten, twenty or more PIPs over your weekly PIP capture goal.

If you choose, you can decide to go after a big winning trade without endangering your weekly PIP goal count.  An example:  your weekly PIP count is twenty above your goal;  you see a setup/entry opportunity with an 80 PIP target;  allow yourself, on this trade only, a wider 15 PIP stop-loss;  this allows you the luxury of a wider negative drawdown on the way to a possible 80 PIP win.  If you’re right, that’s some nice icing on the cake for the week; if you’re wrong, you’ve still met your week’s PIP goal.

Simply put, the five PIP stop-loss allows you to be a flexible trader, if you choose—in my case, mostly conservative, sometimes aggressive.


-Ira Barnes

Fx365i Instructor